Deal of the day? LivingSocial could be raising $100M from Amazon.com

There’s a big business in online bargains. How big? Amazon.com may be about to tell us, if a rumor VentureBeat has heard about the giant Internet retailer investing in daily-deal venture LivingSocial is true.

A source close to an investor in the Washington, D.C.-based startup, backed by former AOL CEO Steve Case, Grotech Ventures, and Lightspeed Venture Partners, among others, said that talks are underway for a $100 million strategic investment. It’s not clear how far discussions have gone.

The daily-deal space has exploded thanks to LivingSocial and its better-known archrival Groupon. Both now offer deeply discounted offers for services, meals, and group activities from local merchants who have previously struggled to reach new customers online.

Rather than relying on fancy geolocation algorithms or self-service platforms, they’ve grown swiftly with a more human-centered approach: local salespeople who solicit merchants paired with city planners and writers who curate deals and market them with old-fashioned if well-written emails. (Much has been made of their use of social networks to spread offers; my suspicion is the importance of that aspect pales next to good old-fashioned sales and copywriting, rendered more efficient by the Internet.)

Amazon.com is a minor player in the daily deals business through one of its neglected acquisitions, Woot.com. But Woot deals mostly with discounted electronics, a liquidation-focused business where margins are thin. The margins are far better in the local services that Groupon and LivingSocial increasingly focus on. For service providers like masseurs, trip guides, and the like, the cost of goods is minimal and customer acquisition is the biggest challenge.

It makes sense that LivingSocial would be in the market for fresh funds, despite raising money in March and April of this year. With the runaway success of its business model, which commands big margins even on deeply discounted offers in exchange for bringing new customers in the doors of local merchants, LivingSocial can confidently spend money expanding into new cities and countries. (LivingSocial recently bought an Australian deals site for $5 million.)

Groupon is reportedly seeking new investment at a $3 billion valuation — roughly what we hear it has been offered by Yahoo in so-far fruitless acquisition talks. And LivingSocial, despite the competition from Groupon, is growing fast, and has issued a forecast that it will do $500 million in revenues next year. Both companies have a big backlog of merchants seeking to offer deals through their sites.

One interesting dot to connect here: LivingSocial’s new CFO, John Bax, who started Monday, was previously CFO of RecycleBank, a Kleiner Perkins-backed cleantech startup. Kleiner Perkins Caulfield & Byers backed Amazon.com in the 1990s, and CEO Jeff Bezos remains close to Kleiner partner John Doerr. The connection may be coincidental, but a startup’s hiring of a new CFO is often a sign of more aggressive fundraising plans.

Amazon.com has a longstanding policy of not commenting on rumors, a PR representative said. LivingSocial did not immediately respond to a request for comment placed with its PR agency.

Update: An earlier version of this story incorrectly reported that New Enterprise Associates had invested in LivingSocial.